Host: Many searchers will say, I'm looking to acquire a business and own it for the long term. Well, admittedly, I'm not sure I've yet had a guest who has actually done the second half of that mission own for the long term. So what might doing so look like? This interview will show you Picture it. Chicago, early mid-90s. Today's guest, Gat Caperton is in his late 20s, working for the famous entrepreneur Sam Zell by day, taking business school classes by night. It occurs to Gad around this time that to really get to the next level, he should buy a business. He was familiar with manufacturing. He was from West Virginia and wanted to get back. So when he learned about a quote, old guy building furniture in Berkeley Springs, West Virginia, he tried giving said old guy a call. It worked and Gatt became the owner of a wood furniture manufacturer at age 29. 28 years later, he still very much owns the business now called Gat Creek. This year, Gat Creek will sell about $25 million of American made wood furniture to partners like room and board, a favorite store of mine. And Gatt made a big bet coming out of COVID to double capacity over the following seven years or so, aiming to reach 60 million in annual sales. This was such a fun interview, partly to peer into the future. Some of my guests will indeed own and grow their businesses for decades, and partly because Gatt is a fun guy with great stories. I think you'll enjoy him too. Here he is. Gatt Kapperton, owner of Gatt Creek Announcements A Webinar this Friday, Johannes Haack will do a presentation on how to move fast when evaluating acquisitions and in order to avoid the notorious long multi year search. Increasing the velocity of your deal analysis will allow you to look at more deals and arrive at the one faster. Johannes and his partner ran a two year search in two months and closed in under six months. And he's going to show us how they bought an artificial turf business in Texas and have grown it considerably. You can hear his story in episode 186 from October of last year. So come learn from Johannes how to look at deals and quickly decide go no go, a key skill for an efficient search. That's this Friday, November 1st link to register for that webinar in today's show notes or on the Acquiring Minds homepage acquiringminds Co. Also, don't forget to sign up for alerts at SmithList, the job board for operators and leaders of small businesses. For some of you, buying a business right now is less your priority than simply operating and leading a business. You want to get in the seat? Well, Smith List lists amazing opportunities to do just that. Many of the roles posted there are from within the Searcher community, owners who have bought businesses and are now looking to hand the reins to an entrepreneurial operator. Which is probably you if you're listening to this podcast. So head to smithlist.com and sign up for the alerts so that you're notified as we post new job opportunities for entrepreneurial operators like you. Smithlist.com Smithlist.com Foreign. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders, so so he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA and search space. Our niche is his niche. You'll see Mathias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring Minds guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes. Gat Caperton welcome to Acquiring Minds.

[5:16] Guest: Great to be here.

Host: Will Gatt, you are 20 plus years into your journey of having acquired a business. Now the vast majority of my guests have more recently or relatively more recently bought a business, so we typically are hearing what their search for the business was like, what the deal terms negotiation was like, what the transition has been like, and then of course how it is as new owner of a business that they've acquired. But given that you are so much further along and that really your acquisition has become your career, we're going to get a bit of a different perspective today and I think listeners are going to find it to be a real treat. Let's start back in the 90s, Gatt. Who were you then and what was the path back then that led you to want to buy a business?

[6:08] Guest: Yeah, quickly. I grew up in Charleston, West Virginia, the outskirts of West Virginia. I used to play in the woods when I had free time, Went to high school, believe it or not, in New England, and then went down to North Carolina to go to college. I played football down there and then ended up with a job in Chicago working for a guy named Sam Zell, who happens to be just really one of the great business guys of all time. It was a dream job job, worked for about three years and I, I, looking around I, I realized that all the guys that had MBAs got paid a lot better than I did. And I said, geez, I, may I go get one of those things? Went to, to University Chicago at night while I was working for Sam and started working through an MBA and about, I was probably halfway through the process and I was thinking, geez, I got to go back to Sam one day and tell him, you need to pay me more because I now I have an MBA instead of a BA and that looked like a pretty daunting negotiation. He's not an easy guy to negotiate with. And you know, walking around, I said, you know, what I really ought to do is I had to buy my own business. That's the way you really graduate from working for a guy like Sam Zell and going through school. So I started on my free time and I wasn't any free time. I was working full time, going to school at night, but here and there, just kind of calling around people I know to look for a business I've been doing.

Host: Let me, let me stop you right there. Let me stop you right there because I have a bunch of follow ups about this. First of all, Sam Zell, legendary business guy, as you said in the 90s. Was he already a legend or was he, he must have been far less known then, or not.

Guest: You know, he was more of a, he was a legend in the real estate world. He was primarily doing real estate and he had a nickname, the Grave Dancer. He turned around a lot of real estate properties and had, you know, gone from zero to, you know, a couple hundred million dollars. You know, he concluded about, you know, $5 billion. So it was relatively odd. But he was well known.

Host: Did you work to work? Did you work directly for him? Did you know him, have a relationship with him?

Guest: Yeah, I worked, I was on the seventh floor, he was on the sixth floor. And I didn't work directly for him, but I was, you know, one person away. And so I got to have a nice relationship with him. I, you know, I wouldn't, I, I wouldn't, you know, insider, insider. But I get to work a lot

Host: with him and any, any interesting things you can say about him that weren't already part of his public Persona. He passed away in 2020.

Guest: Yeah, 20, 23 or 24. It's been, it's been less than a year.

Host: Oh, oh, oh. Didn't realize that. Okay, go ahead.

Guest: No, he, he was a goat. He was one of the greats of all time. He was very smart. He was a fantastic person to work for. You know, one of the kind of takeaways is that he really loved, you know, running into smart and young and interesting people and work with people and throw them in the deep end and see if they could swim. You know, he loved, you know, putting people in over their heads, see how they reacted, how they're comfortable with it. So what a cool guy to work for. So, you know, I got thrown a deep end many times in my life, so that really didn't bother me. I was always kind of figuring out how to swim, you know, when the water was over my head. So yeah, it was a treat. He was, he was as smart and, you know, his reputation is well earned.

[9:21] Host: Yeah. Yeah. Well, how you just put being thrown into the deep end and learning to swim while the water's over your head, I feel like that perfectly captures buying a business actually as well.

Guest: I think it was very, not only

Host: your story, but somebody.

Guest: Go ahead. Yeah, yeah, it was very relevant. It was exactly the same feeling. And I guess one of the things that gave me the confidence to go out and say, you know, I need to do one of these deals myself.

Host: Well, great. So that you've checked the confidence box that you've already been in many situations by this point in life that where you, you've demonstrated to yourself that you can figure things out when, when you're, when you kind of start over your head.

Guest: At least I demonstrated, I was willing to jump in.

Host: Okay.

Guest: I don't know if I demonstrated I could be successful, but I was willing to try.

Host: Okay. You had the fearlessness. Maybe not the competence, but the, but the fearlessness, which is maybe more important, the, the insight to buy a business though, or the idea to buy a business. There are many paths to become self employed to generate wealth. Even today, as we talked about in the pre call and I was telling you about this podcast and how there's this whole trend of people buying businesses, but it, and so it's, it's more popular now than ever and yet it is still very much, very much an alternative path. It's, it's not that many folks out there doing it in the 90s, you know the phrase ETA search funds. None of these things existed. So. So give me more on how it occurred to you to do this path, which was even more alternative then than it is today.

Guest: Sure. I, I was really honestly working for Sam. We, I was in a group called Eagle Industries that they he'd put together years ago with a holding company that had a large tax carry forward and he bought successful manufacturing companies to go under that shell. And I'd done a lot of work in there. I'd been in a lot of manufacturing companies. And you know, I thought, and this is again in 90s before you know, manufacturing got goofed up by China, there was a lot of manufacturing around and I was really comfortable with it and you know, it was an easy thing to find passion in. Um, and, and you know, I guess I went looking for a business before I really knew how I'd finance it, to be honest with you. You know, so much of I just, I calling around, you know, dumb and know what you knew and eventually find. I figured when I found the right business I'd figure out how to, how to finance the acquisition.

Host: Well, what that kind of feels like a little bit to me is I'll have a lot of guests who come from private equity. They maybe they worked at a private equity shop as an analyst and basically and kind of said, said to themselves I can do what we do here at a smaller scale for myself. And it feels like maybe, you know, kind of what Sam was doing at Eagle Industries, I know there was a particular financial play he was doing there, but basically, you know, you were in a private equity shop of sorts and you guys were buying manufacturing businesses and you kind of said to yourself, I can do this at a smaller scale for myself. Is that a fair analogy I'm drawing?

[12:25] Guest: Right, exactly right. Totally agree with you.

Host: Okay, okay. Okay, great. All right. So you set out to buy a business not knowing how you're going to finance it and but decided that it'll be manufacturing because again this is where your skill set is.

Guest: Yeah, that was, that was my parameters. I thought manufacturing was very cool. Small manufacturing company would be very exciting. Again, China wasn't an issue in these days. It was before they were in the WTO and there was a lot of small manufacturing companies around those days. I think, you know, I had a much, a much deeper well than there would be today. If you'd say ah, I want to find a manufacturing company. It wasn't quite as niche as it would be today.

Host: Yeah, yeah. And so what year Is this exactly? And how old are you?

Guest: 94 or 95. And I was 26 or 27 years old.

Host: Okay, tell us a little bit about how you then found what is today Gat Creek.

Guest: Yeah, yeah. So there wasn't any of that infrastructure in that that I'm now learning about, which is kind of cool. I literally just called up people that I knew that, you know, I'd met through my father, I'd met through work I'd done. So a lot of those phone calls were people in West Virginia because I had grown up there. But it went exclusively West Virginia. And, you know, it would you call and leave from one to the other. I eventually found a little water bottling business in southern West Virginia. And I was like, huh, that could be a good business. You could, you know, you get water for free and then sell it for a buck. You can make that work. And I went down and looked at it and I did the business plan and I found out why, you know, exactly why it doesn't work. Because even though water is free, it cost a fortune to put in a bottle. To put in a bottle. And, you know, it was a high capital, low thing, business. I said, no, I never made an offer on the business, but it was a nice little, you know, start. And then I was looking around and I actually think my dad one day said, I remember years ago, I was up in Berkeley Springs, West Virginia. There was an old guy up there building furniture. He's the only guy that's actually doing value added manufacturing. All we seem to do in West Virginia is cut down trees, send them to North Carolina, buy the furniture back. He's building something, you know, maybe he'll take your call. And I literally cold called Tom Seely. I think the person got confused and let me through to him. And he was like, why you call me? And I said, well, it doesn't matter. Well, we're on the phone. I introduced myself, and ultimately, you know, we had a nice conversation. I said, I'd love to see your business one day. And he said, fine. And so I took a day off of work. And in those days, you could, you know, jump on a plane in Chicago, fly to D.C. drove out, spent three hours with Mr. Sealy and, you know, finished it, then said, you know, this is kind of business. I've always looked, I've always wanted to buy. Would you be interested in selling it? And he said. I said, yeah. He said, I would. I don't want to sell it the corporation. I don't want to do this. I Don't want to do that. But you seem okay. If you want to make an offer, you will. I said, I will. And then, and I said, I said I'll make an offer. And you know, that offer is, you know, I'm going to come to this community and run the business the way you'd be proud of. And part of that offer is going to be you financing me and providing some of that financing. He said, well, that's fine, we'll see, we'll see what you come up with. So I got the financials, went away, and a month later made an offer to buy the business.

[15:46] Host: And it's striking, gatt, how similar that pattern is to the or that story is to the pattern that still often plays out. Some things have changed, but some are exactly the same. Including kind of your, Forgive me for sounding so academic, but your value proposition to Tom Sealey, which was carrying forward the legacy, doing right by your people, doing right by your business, doing right by your community, sounds like that was really, really resonated with him. And you made a point to say it. Am I right?

Guest: Yeah, it did. And as you go through this whole transaction, you know, it was critically important on two sides. On the financing side, the part of the pitch was obviously I needed the financing a seller note, but it was also, to me, it was like, you need to be in this as well. How am I going to trust I'm not buying something with a time bomb in it if you're not willing to participate in the financing of it? And those two things became pretty good sells and then the other kind of helped to close and hard to close these deals. The guy built the business for a big part of his career and he was an old school guy, you know, he lived out of the business. If, if, if his wife wanted to floor swept, she'd call the factory, someone would go buy a broom, sweep the floor, leave the broom there and then come back down. So I had to kind of off to the side, you know, take a, literally do kind of a five year plan and say, hey, you know, I'm going to take care, I'm gonna have someone take your trash out for the next five years. And you know, the plan is over five years. We gotta wean yourself off of doing, having the business do everything for you and work your way down to zero. And I use the trash thing because that was one of the few things that lasted five full years. It was literally like the last day I had to send the guy up to take the trash out for.

Host: Man, Gat that is, that is classic. I after having talked to well over 250 people for their stories, the theme that you know, a seller's personal life is all intertwined with the business, particularly financially. You know, the boat, the car, the cell phone, all of the stuff that's and gone through the business. But I've never heard this level where basically all his home services, somebody at the factory, one of his employees has to schlep up to his house to do for him. And that one of your, one of the sweeteners of your offer to him was to do his trash or to

[18:08] Guest: get his trash taken out once a week. You know and you know the guy who did every day, every day was guy did it to the very end and he was the guy that came up and said get this should be the last pickup. And I said, you know, you're exactly right. I'm going to call Tom and tell him to give you a tip because it's the last time he's going to see you in his house. Get interesting. Thank you.

Host: You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that is a job in itself. Acquiring minds Guest Nick Akers knows this firsthand. As a former searcher who now owns ENSO Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at INSO regularly works with searchers and their acquisitions offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients. Drawing from his own experience in the search phase. Enzo dates back to 1989. So this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo a big differentiator. Check out enzotechnologies.com I N Z O or email Nick directly@nickzotechnologies.com and don't forget to tell him you're a searcher. Just going back to your cold outreach as we would call it to Tom Seeley because this is a big part today something that the the kind of tactics here we talk about a lot because finding a good business to difficult and therefore getting sellers on the phone, getting their ear and then meeting them and then seeing the business and so on is is it Kind of a big part of the search process. You flew out to see him without, without saying, did he kind of smell on you that you might be this, this young guy interested in buying his business or, or like what was the pretext of the visit?

Guest: Yeah, I think that's, I think that's true. I told him I was very interested. I told him I was interested in his business. Didn't say I was interested in buying the business, but very interesting business. I Virginia, you know, we grew up in West Virginia, always interested in stuff like that. And you know, woodworking's cool, so, you know, so I think he was fine, you know, might as well show the kid this stuff. And you know, and I think he probably thought 10, 20% chance the back of his head that I was interested in working or doing something like that acquisition.

[21:04] Host: And here we are in 2024 and you're the owner and 25 years the owner or Tom lived.

Guest: Tom lived to be 96 years old. He was 75 when I bought the business. I think 76, in his 70s. And you know, we developed and kind of tried to treat each other like family. He was, he was kind of a grandfather. I treat him like a grandfather figure. He would treat me like a grandson and would give me those types of advices and stuff like that. It'd be a Friday and I was, you know, I bought this business for, I finished, I finished my degree. So I had to, I spent six months going back to Chicago every weekend so I could finish my degree and, and every side at the rush out every Friday to catch the, catch the plane and get the train and go to class six o' clock or Friday night. And he'd always like, okay, now watch out for them smokies. As I was driving out. So he, you know, he gave me kind of grandson type advice throughout the rest of his life. And I, I, we tried to teach, teach it that way. I mean we weren't family, we weren't super close, but we, we tried to respect each other those kind of ways which made it. Made a transaction nice for both of us. Yeah.

Host: Yeah, that's really, that's really, that's great. And just one thing on one more, a little more detail on the value added manufacturing piece. Your father had said to you, contrast value added manufacturing versus whatever the alternative is and how this, so, and how your, this business was value added.

Guest: Yeah. You know, West Virginia says a great tradition of being an extraction state, you know, mine coal, ship coal out, cut trees, ship trees out to do a value added manufactured you know, it would be the next level where you take, instead of making lumber, you take the lumber and build a piece of furniture. Okay. And so that was exciting and it's.

Host: And it was unusual, particularly in the furniture world, where of course we're going to hear about China here in a little bit. But at the time this was still where, when North Carolina was kind of really dominant. What was the lay of the land, the industry lay of the land for wood manufacturer manufacturing in the.

Guest: Yeah, it's a great, it's a great question. So in those days there had been a big wave of consolidations that into the big kind of the conglomerates of the day had moved into the furniture industry thinking that it was an easy place to make money. And there had been a couple folks that had done relatively aggressive roll ups. And they were actually pretty smart folks. Some of them were smart and they all failed. The. There was a bunch of businesses that had been consolidated, rolled together that were failing. So there was a kind of a feeling in the industry that outsiders can't run this business and that outsiders were going to fail. And people were uninterested in folks kind of buying in, thinking that they're smarter than the rest of the folks from the outside looking in. You were like, I'm getting into this business because I'm going to compete against these guys because they didn't look very smart. When you were looking from the outside, you know, the long lead times, relatively inefficient manufacturing, it looked like something that you could, you know, it didn't look like a smart industry. It looked like something you could compete in. And that was part of the business plan. I made two real mistakes in my analysis coming into this business. And one was that was like, you know, it's not a very well run industry. I could compete against those guys. It's an open field. And you know, in hindsight, which I learned over time, was that, you know, you're actually better off with smart, good competitors than you are with bad or dumb competitors. You know, an industry, you know, an industry that's really working hard and doing great stuff is a much better industry that creates more value than working with the industry that's, you know, slow and backwards and, you know,

[24:50] Host: you're out of

Guest: a good competitor than you are with a bad competitor.

Host: Patrick, that's so counterintuitive. Can you just elaborate on why? Why if everybody else is in your industry is not doing the smarts thing and you are, why don't you just out, out compete everybody? Why doesn't it work that way.

Guest: There's plenty of businesses, there's plenty of industries out there where it's a whole bunch of high end. You look at the, the, you know, the chip business, you know, those guys were all rock stars competing with each other and they built a beautiful industry and a business and a world changing business. You know, when you have people going to market with the customer focus in a very smart way, I think it makes it a better industry. You attract more consumers in the industry because you're doing cool and productive things. And often when people get themselves in a corner by not doing the right stuff, they react by cutting price, cutting service and doing stuff that ultimately hurts the overall marketplace as opposed to build the marketplace place.

Host: Yeah, yeah.

Guest: Very counterintuitive insight. I was dead wrong with my analysis. And later, later I got really involved in the furniture industry. It's like, you know, you know, this first issue needs to be strong. I'll be more successful in a strong industry than a weak industry.

Host: Yeah, yeah. It's such a great insight. But let you know and again, I'll probably do this throughout our conversation here. G but the echoes of what you, your analysis and what we hear today from people doing this today, which is, you know, the sellers are pen and paper. They've been resting on their laurels. They're, you know, in their 70s. They're not tech forward, they're, they're not up to speed on, you know, how Gen Z buys H vac services or whatever. So, so they're basically unsophisticated. That's, that's the word that we hear so often in including from my own lips. And it's both, but it does prove to be both true and false in some. Sure, they might not be on TikTok advertising their H vac services, but, but typically we outsiders do underestimate the genius that they, that they bring to their own businesses. And so it's not as easy as, as getting into what appears to be a dusty old industry and cleaning up. It turns out to almost never be that easy anyway. Want to react to that?

[27:20] Guest: Yeah, I think, yeah. Founders of businesses are often good at a couple things and you make a great mistake saying that they're just old fashioned, they're doing everything wrong. But also at the same time, there's blind spots, there's real opportunities. And on this acquisition, I was really more focused. The blind spots I was focused on was the manufacturing itself. I really didn't know how to sell furniture. I didn't know it was not done in an effective way. But, you know, he was selling $10 million of furniture a year. You know, I walked through the furniture, looked like nice furniture and looked really good, but the plant was a disaster. I mean, they were, you know, nice product came out the door. But the process was crazy. And even as, you know, even as someone that got to be in workshop and wood shop, I could walk around and say, this is not the way to do it. And so as you're doing the business analysis is like, we had $10 of revenue. We can get an. I can move to the community, move into the factory and figure out how to make that furniture for, you know, not $10.1 million, but make it for $9.5 million. And then I could improve the manufacturing side of it and then ultimately grow it. But the, the first move and the first financing was that, in essence, you know, it was an LBO. It was leveraged buyout. I, it was 70% debt seller paper when I bought the business, really 90% debt overall. And the play was I thought I could fix the manufacturing and specifically implement lean manufacturing. And we did that, and it went well. And in the first year, we cut the lead times from like 16 weeks to eight weeks. When you cut your lead time in half, you cut your inventory in half. And it frees up a whole bunch of cash. So we made it lean, made a good manufacturer inventory. That inventory went in half. We generated a good million and a half dollars worth of cash, cash in the first year and a half, kind of getting that under control. And that would allowed me to get to really a normal balance sheet by year two, by the end of year two.

Host: Phenomenal. And I want to spend a little bit more time on what you did and how quickly you basically turned it around. But before that, let's hear just what the business was when you, before you made all those improvements. I just heard you say $10.1 million in costs to $10 million in revenue. So was the business actually unprofitable?

Guest: The business was. It showed a profit on paper, so it had an EBIT of maybe half million dollars. But if you looked at the, if you looked at the balance sheet, the balance sheet was going up a couple hundred thousand dollars a year, mostly in terms of inventory. So they're capitalizing a lot of costs. So it was, it was just slightly better than break even when you really, when you dove into it.

[30:07] Host: And can you tell us what you bought it for? How. For a business that's basically at break even, but is a substantial old business which has A lot of opportunity in it. How do you, how did you come to evaluation of that?

Guest: Yeah, so, so I had done a lot of that. So luckily that was able for me to kind of justify it. And I went at it at two angles and, and to, to cut to the end, it was essentially a book value deal. There was just so many assets on there and it became a book value deal. And in terms of a multiple on what they showed is that EBITDA multiple. It was five and a half, kind of an EBITDA multiple, which was basic for an enterprise value. And total assets in the business was about 4 million. So it ended up being a book value deal and it checked off. If you looked at kind of a multiple of cash flow. Oh, it was probably, when you do the accounting, right. It was a high multiple of cash flow, but not unreasonable, not crazy high.

Host: Okay. And when we say book value or asset deal here, gatt, one of the things that actually probably has changed quite a bit since the 90s is that many of the businesses that are acquired by people listening to this are air balls. They don't have much in the way of hard assets. And so you're, you know, you're buying goodwill and so, so we actually don't often. Deals like yours are actually rare these days. So when you say book value basically added up all the hard assets of the business, which was probably primarily that inventory that was sitting around and then whatever machining equipment was there.

Guest: That.

Host: Right, whatever that added up to. Okay.

Guest: You know, and a building, so building machinery and the, and equipment. And then, you know, you know, cash and receivables.

Host: Okay. And, and, and so you got, and you got Tom. Tom financed the vast majority of it. You said 70%? Actually, more like 90. So you brought, you brought a few hundred thousand dollars to the table.

Guest: Yeah, yeah. So I had, I, I end up, you know, put everything I had together. I had 5%. I, I got Tom. Tom financed 70% of us. I get a seller note with him where I paid him. I did interest only for two years and then I had balloon payments year three, four and five. So it was kind of an installment sale. I went to a local bank and literally a local bank, and they said, ah, we can get you 20%. So I got 70 from the seller, 20 from the local bank. I had five. And I went to family for the other five. So the rest of my family, you know, dad primarily owned the other, owned the other half. So yeah, it was kind of, it was, it was cool. And then, you know, went to work

Host: did your dad own. So he. If he brought half the equity, even though it only was 5% of the deal, did he end up being 50% owners with you?

[33:00] Guest: He did. He did.

Host: Oh, so you and your dad were 50? 50. Oh, I didn't get that from the pre call.

Guest: That's.

Host: That's.

Guest: That's cool. Yeah, he would. He wasn't active in the business, but. But he was a 50% owner and a great owner. He. My dad. When I was growing up, my dad sold insurance. He had insurance brokerage, a family insurance brokerage. So that was kind of my bias towards having business. And then later in life, my long story, my dad was. When I was in college, my dad decided that he wanted to become the governor of West Virginia and did so. So my dad was the governor of West VI for eight years. Yeah, I didn't get that part either.

Host: The recall.

Guest: Yeah. Oh, okay.

Host: I'm talking to West Virginia royalty here.

Guest: It's a. You're. You're. Well, well overstated that, but yeah. So, yes, he was a 50% partner and he was a silent partner because it was a relatively small investment, you know, and he had a bunch of other stuff. He was interested. He wasn't a manufacturing guy. He didn't.

Host: Okay. Okay.

Guest: So it's really nice. It was. It was great to. He was. He was a great partner.

Host: Yeah. Yeah.

Guest: That. That's really.

Host: That's a great detail. Thank you for that. And then the governor detail. You're actually g. You're actually the second governor's son I've had on the podcast. But the first time around, I didn't know that who I was talking to was the governor's son. Tennessee governor. I won't say his name, but anyway, I found out after the fact that I had been interviewing the son of the governor anyway.

Guest: That's right. Just on that side is that, you know, your parents, especially, you know, the kid and the dad, son and the dad, they bias you easily. But interesting. My dad was, you know, I was growing up. My dad was in business. He later became a politician. So I didn't grow up a governor's son, and I didn't really grow up with a bias towards politics. I was always kind of interested in business because that's what my dad did.

Host: Yeah, well, and I heard you say this bias towards small business in particular. So rewinding back to your time in Chicago, and we. We heard why you got off that track and come by the business where you characterized it was, you know, how do I basically become. How do I build wealth. How do I get out from under Sam Zell? But it sounds like you might have ended up doing this path anyway. Not necessarily that you were trying to leave the Sam Zell situation or that job, as good as it was, but that you, you were, you may have ended up as a small business owner, you know, inevitably, I think so.

Guest: I, I love working for Sam and I, I've been happy word for him, you know, if I was working for him today, it was fantastic. So there was no trying to get away from anything. But I definitely had a bias growing up with the dad at an insurance brokerage that was essentially, you know, a family business and was, you know, that was always in the back of my head, something cool to do.

Host: Okay, so you may have already just, you may have just answered this, but when your vi, your vision, so we know why, why you wanted to buy a business, you wanted, and you wanted to do it in your home, your home state of West Virginia. Was your vision that it would be, this acquisition would be your career or what, what was your, what did you have a long term vision or were you just kind of taking it year by year?

[36:09] Guest: Yeah, well, I, I, I, I think I had a long term vision, but of course you never really know the long term. No, I bought it in a way that I thought that I was well open in my mind that it could be a 5 year, 10 year deal where I ran a business, sold it and then did something else. I had in the back of my mind that maybe you buy this business and you buy an upholstery factory and you become a bigger furniture business. I was really open to all three paths as, you know, as you own a business, you know, I guess I got a 20 year run of owning this business and you know, there's times, you know, this business was, we've, you know, we almost died a couple times. We've had success. I want to hear about that. Yeah. And so, you know, when things are, when things are running pretty good, you know, and I really don't have a big appetite to selling it, you know, when things are crummy, you can't sell it. So, you know, next thing you know, you put 28 years together. So there was times where I, you know, the value in my head, what this business was, was greater than what, what a buyer would buy. And then there was times where there just wasn't any value Here was we wanted a valuable business, things were tough.

Host: Yeah.

Guest: So, so it never, I'm not so proud that someone had shown up with A check. I would have taken a check and found a second career. But, you know, the job, it proved to be a great job. I, I loved it for a lot of, I've loved it for a lot of reasons.

Host: And you said 28 years. So 1996.

Guest: 96.

Host: 96.

Guest: Great. Okay, January of 96.

Host: And how old are you now, Gat?

Guest: 57 now.

Host: So returning to your turnaround, you've already, you've given it to us. In brief, you basically place the production line, the manufacturing line. The process was a mess, inefficient, no order. You come in, implement Lean Menu, and anybody could see that. Even your, you know, B in shop class said could see that. You come in, you, you implement Lean Manufacturing, you get all this inventory that's sitting around off the books, that frees up a lot of cash. And then with that cash, you strengthen, you really strengthen the balance sheet, deleverage it and get cash on it. Right, Correct sound. Right. Okay, great. Lean Manufacturing. This is something that we've all heard those two words together. But if we don't, if you don't have any manufacturing experience, you don't know exactly what that is. We assume it to mean more efficient manufacturing, but maybe give, give the audience a two minute tutorial on exactly what Lean Manufacturing is.

[39:02] Guest: You know, there's a fantastic book called the Goal, which has been read by most and many people, and it's a story about turning around a small factory with lean Manufacturing. Goldrat, who's the author, it's a classic and it tells the story better than anything. But simply, just from my stories, Lean Manufacturing is about eliminating waste and focusing an organization on doing what customers pay for. So you're looking at having a clean facility, a well organized facility, one with that extra inventory. So it's the whole combination of basically eliminating waste and generating efficiencies that's customer focused efficiencies.

Host: Okay, okay. And are there kind of frameworks and playbooks or is it just a vague sense of like, you know, dialing in your operations so that they're tighter?

Guest: Yeah, the best playbook is the Toyota production system. Toyota pioneered this and they're the best. And there's a couple great books about the Toyota production system that are also helpful to read.

Host: Okay, now, but going back to the shop class B and shop class thing, but in fact, at, at Eagle Industries with Sam, you guys were buying manufacturing, so you had been exposed to a lot of manufacturing turnarounds. Correct. So in fact you had some industry experience doing exactly this or.

Guest: No, I was on the second half of this, of the Eagle industry, Eagle Industries deal. So I was actually at the latter half for the second half of the, you know, it was essentially a 10 year kind of run where they bought the businesses and used up such. So I actually had more experience selling the businesses as we were kind of downsizing and downsizing the investment than buying. But I had spent a lot of time in a lot of different manufacturing companies. We had a period in the early 90s where our cash flow for us was tight and I spent a lot of time working with the factory presidents in and out of places where I could be value added, help, help us generate cash flow. So I had good experience.

Host: You had. Okay, so, so you, you kind of. Yeah, you really could go in there with a, with a playbook and kind

Guest: of know what to do. Day one. You know, I've been in and out, so I've been around it, worked it and I see people do it. You know, I'd never run a factory line or this or that, but, you know, I, I had enough experience that I felt I could do it.

Host: All right, well. And do it you did. And so two years in business is looking pretty good, right? And you're feeling like a genius.

Guest: Yeah. Oh yeah, I felt pretty good. It was nice. You know, that's, that's great ego work when that stuff comes together and you know, it seems like you talk about a lot. You know, there's a, there's a big, there's a lot of anxiety when you, when you buy a business and you know, everything's new, you're discovering stuff. And you know, the first two years you discover crazy stuff. No matter how good you are, due diligence, you miss stuff. And this was an old factory that had all kinds of problems, you know, you know, you know, they, they literally, you know, paid women 70 cents on a dollar what they paid men. You know, you just don't see until you walk into place. So we had to correct all kinds of crazy stuff. I had one point in time, I had guy, right? But two months in, it was March and a guy walked. Factory says, yeah, it looks like a good day for a burn off. And it was Ronnie was his name, said Ronnie, I don't know what a burn off is. He goes, oh yeah, you know, we burn things off at this days, like this is smokey and stuff like that. No one will see a smoke. I said, I still know what you're talking about. And so he goes, shows, man. Essentially they took ahead of 1950s dump trucks all the Short wood and wood they couldn't use, they took out in one of Tom's old fields that was a kind of over the hill across the road. You couldn't see it very. And dumped stuff out there. And then it was this, you know, a couple times a year when it was smoky and foggy, they'd light it all on fire, burn it off. And so he explains it all to me, and I said, ronnie, I don't think that's legal because, oh, we've been doing it for years. I said, I don't think that makes it legal either. He said, well, okay, smart guy, what do you want to do? And I looked around and I said, all right, burn it off, but never clean it up and never bring another piece of wood out here. We've got to do something different than this. So the first two years were kind of discoveries of crazy things like that. You know, you're fixing stuff. It was. It was a ton of fun. A ton of fun. The business, when I bought it, had not. It was crazy manufacturing. They didn't have a catalog, believe it or not. They would take a picture of a piece of furniture and get, like, 20 copies made at the Fotomat and then put them in, like, an album. You should put a family album. That's what they were handing out to people, buy furniture and sketches. So we actually had to create a catalog. We create all that stuff. And the business grew. You know, we generated cash. It grew, and it got to about 14, 20. It got to $14 million, which were 10 to $14 million. At $14 million, we were at capacity. We found our capacity. That was about four or five years in. Six years in. Yeah. Six years in, we got it to 14 million. Found capacity. I went to the bank. I had a good run. It was an easy time to go to the bank to refinance and added space and rebuilt. Spent $2.5 million, rebuilt everything, added space, essentially doubled our capacity. We said, we're going to go from whatever, from 14 or 15 to 30 million. And we put those assets in. We did on time, on budget. We had to do crazy things like fire control. And the day we. The day we got all that work done, our sales just went through the floor. Just. Everything went bad. You know, key customers go out of business or some of our product line. It just hit the. You know, hit the end of. Hit the end of success. You know, they. They died. And, you know, then the economy got bad.

[44:49] Host: So we.

Guest: We. We loaded up again with debt and got cobbered. Our sales went back down below $10 million. And I.

Host: Is this 9, 11 time frame gat, what precipitated this decline?

[45:03] Guest: Yeah, so the product line. The product line got old. We had a lot of customers that went out of business. And China. China came in and changed the manufacturing of furniture. When I bought the business, 90% of the wood furniture that was bought in the United States was made in the United States. Fifteen years later, it went from 90 to 10%. It flipped. Flipped upside down. So it went to. Yeah, it went from 90 to 10. So 80% of the market went to China. And deflation came in. You know, distribution channels changed and we got collaborative and we spent literally three years hand to mouth. It took me 100 days to pay any of my vendors. I paid the bank on time. I paid the government on time, paid employees on time, but everybody else had to wait, you know, three months to get a paycheck, to get paid for. For services. And, you know, my suppliers kept us in business. You know, I still buy wood from the same people because they. They stuck in with us.

Host: And this would have been early 2000s,

Guest: early mid 2000s, 2004, 2005. And then, you know, the economy got terrible in 2008, you know, had. We had to, you know, Great Recession in 2008. So, you know, everything was hard. And it took us to about 2010 until we got, you know, back on our feet where we could, you know, pay people again.

Host: And the business model for a manufacturer like you is that you don't sell direct consumer. This is well before direct to consumer D2C even existed as a model. So, I guess all manufacturers, like you'd sell through retail channels. That was the model.

Guest: Yeah, that was the model of the day, for sure. We independent sales reps, and you would sell wholesale to independent retail stores. And, you know, then they would. They would sell the retail portion. So, okay, it was a crazy distribution. It was an easy. It was a distribution channel that was easy to disrupt from. From China.

Host: What was so easy for China? Just because they go to those same retailers and say, we'll give it to you for a tenth the price or half the price or whatever.

Guest: Yeah, yeah, that's. That's easy to disrupt. And. And, you know, in those days, China was, you know, illegally dumping product. They were literally, you know, paying woodworking operations in China 20% to export to the United States. So it was. It was impossible competition.

Host: Wow. And it sounds like it happened quite quickly. So China comes into WTO and then. And I mean, you feel it within a couple of Years and then it's unrelenting sort of thing.

Guest: Yeah. 2001 is when they got the WTO. They'd had. Well, they had, they had most favored nations in the 90s and people were like, huh. You know. And then ultimately WTO and then they, when they got in there, they got especially aggressive and you know, in cases illegally trading with the United States. And yeah, it was hard everywhere. We were lucky, we were high in, we could find a little bit of a niche. But there was wild different deflationary pressures in the industry. And yeah, it was, it was crazy time. It was tough.

[48:02] Host: Yeah. By the way, how many employees were at the business when you bought it and throughout this first 10 years?

Guest: Yeah, I bought it at. It was $10 million business had 130 employees. Today we're a $30 million business and have 160 employees.

Host: It goes to show the value of that lean manufacturing a little bit more of an efficient operation today.

Guest: These days we buy these gigantic CNC machines that are magical or world changing type technology that are wildly productive, that make a big, big difference efforts. But.

Host: Well, I want to, I want to hear about what manufacturing looks like today into the future. So we'll hit on these CNC machines. Okay. How did you ultimately. I guess you explain how you survive these hard times by basically paying your suppliers in 100 days and just you know, Robin. Whatever. Paul. To pay Mary. Whatever it is.

Guest: But yeah, so it was, it was real cash management. And you know, we, we would, we would speak to our suppliers, you know, every week. You know, we would pay them what we could. We would make sure we did exactly what we said we would do so that they could continue to trust us. And they were, they, you know, they were in a position that they were willing to kind of write us out. They, we were an important enough customer to them that they would, you know, they, they essentially financed the business for three plus years.

Host: And then how did you. Because, because in, in some situations where there's a downturn in an industry, it's a cyclical industry and so it goes down and you're holding your breath till it comes back up. Real estate would be a classic example. But in this case it feels like it was a secular change where China's. This is a permanent disruption to manufacturing. It's not just going to recorrect. So, so what were you holding your breath to have happen? And ultimately what did happen that you could get shore up the business and carry on

Guest: twofold? One is, which is, you know, we aggressively went around Trying to find other channels and ways to sell furniture and people to sell furniture too. You know, there's furniture that you can obviously today you can sell direct to consumer. You could sell it through lifestyle, big retailer stores. And we basically, you know, all of the above was the answer. We look for any kind of customer that could allow us to bring volume through the business and we would aggressively go out there, pursue that business, especially a lot of the OEM business that we started doing a lot of work with. You know, ultimately what our biggest customer would be, room and board, which is a wonderful business. Sure, sure, yeah. You know, found some different channels that we eventually got traction in and had growth in and, you know, found protection in. So yeah, we went every, you know, we knocked on every door we could, tried everything we could to sell furniture and eventually found enough, you know, other customers that we didn't have before to start growing the business,

Host: running payroll, paying your bills, closing your books and producing financials. These are critical tasks every business owner must do or oversee. But spending time on them distracts you from the leadership in growth work you want to do. So let system 6 do it for you. Owned and led by a former Searcher, Chris Williams, System 6 is a leading outsourced finance team for, for hundreds of SMBs, including over 50 searcher acquired businesses. Chris, Tim and the System 6 team understand firsthand the challenges, the opportunities of jumping into a business as its new owner. So whether you own your business already or have one under LOI, talk to System 6 about how they can give you time back and improve your financial operations. Mention acquiring minds and they'll provide a free review of your books and financial ops, a $500 value. Check out system6.com, link in the show notes or email helloystem6.com

[52:07] Guest: simultaneously we joined a group that sued the Chinese for illegally dumping wood bedroom furniture. And back in.

Host: Tell that story Gatt. You told it to me on the

Guest: pre call, the phone call you get, it's great. And I had gotten, I had gotten a call from John Bassett, who and Bassett sounds like a furniture name. And I didn't know anyone in industry because I was still kind of an outsider. He called me up and he said, get, you know, these Chinese are stealing our business, blah blah blah. And I said, yes sir. And he, and he said, we're going to sue him. I want you to be on my team. And I said, john, I got a couple problems. Three actually, because, oh, what the heck could your problems be? First off, you know, I went to fancy schools and they talk about free trade and how important free trade is. He's like, cat, this isn't free trade. It's blah, blah, blah. I said. I said, well, I got a fancy degree, but I know you vote with your wallet, not your degree, and I think you're right. Don't worry about that. He said, good, Cat. I thought you had good sense. And I said, I hope so, too. He says, what? Because what's your next problem? I said, I'm getting letters. And this is true, you know, letters from all these big menu retailers. They said, if I work with you and I sue the Chinese, they'll never work with me again. They'll never work with me again. And so Mr. Bassett says, Cat, you're not getting bullied around. You're not someone to get bullies around. I'm like, no, I'm not. And those guys sent me a form letter, and you called me, I want to be on your side. And he said, that's right, you do. And I said. And he said, what's your last problem? And I said, john, I'm broke. I can only guess.

Host: Biggest problem of all.

Guest: Yeah. I can only guess how much money it cost in DC with the lawyers it takes to do a case like this, and I don't have a penny. He says, kent, I was afraid of that, but I got a solution for you. I said, oh, what's that? He goes, I'm going to pay your share, and when we win, you pay me back. How about that? I said, Mr. Bassett, that is wildly generous, but before I answer or say yes, I got to tell you, if we don't win, I'm not paying you back. Not because I don't want to, because I'm going to pay you back with Cat. We're going to win. Come aboard. I said, Mr. Bassett, I'm bored. And that was the beginning of. And he was a great salesman. I love him to the day he gets done with that. I said, okay, what I do next? He says, get, I'll call you when I need you. Hangs up the phone, get the deal done and hang up the phone. And I work with him. And he's got two great sons that are great. They become best friends with me over time. And it was a 10 year odyssey. There's a book called the Factory Man. It's a wonderful book. It's all about John. Factory man is an odyssey. So we ultimately went to the itc, Commerce testified in front of all these folks. You know, I had a room with half Chinese, half Americans, everyone looking across each other, I was testifying and we ultimately won. We won it. In those days they had what was called the Byrd Amendment, which was named after our longtime and great senator, Senator Robert Byrd. They decided to put these anti trade laws in place. He said, hey, the government shouldn't get that trade money. The people that are getting beat up by foreign competition should get the money. So when they put tariffs in, they actually distributed to folks like us that had brought the lawsuit. And so that was part of the turnaround. So I got a couple of big checks from the government that helped get me out of debt. It helped me pay John back. My first check I paid an order to John Bassett, but eventually the second one I got to cash and that helped a lot. And then they put tariffs in and the illegal trade stopped. So that was it. How big was that check?

[55:58] Host: How big were some of these checks?

Guest: For me? I was the smallest guy in the operation and over a 10 year period or collecting, it got close to a million dollars. I got the first big one after like eight years and it was a half a million dollar check. When my person who does it came in and showed it to me, I'd never seen a check like that before. I'm like, this is incredible. It had all the colors and everything that the government ch have.

Host: Yeah, yeah.

Guest: And she says, yeah, what do you want to do with this? I said, you know what we should do? We should pay everybody. He said, what? I said, we owe at least a half a million dollars. We could actually get current with everyone we that were behind. Said, you know, I think you're right. I think that's about what we can do. I said, let's do it. We sat down for the next three hours and wrote a half a million dollars of checks out to all our suppliers. You know, kind of tired at the end of the day. So I didn't think twice about. We mailed all that stuff out. And like three days later, a couple of my lumber suppliers call me back up. Cat, is everything all right? Is everything all right? I'm like, yeah, yeah, thanks are fine. Because, well, something's wrong. I said, what's that? You paid me. I got, I got a check from you. Are you going out of business? I said, no, sir. I finally came in some money and I, you know, I owed it to you, so I sent it to you. You're not going out of business? No, sir, we're going to. I think we're going to make it. Well, that's great. And I had like three or four calls like, that was wonderful. That's great.

[57:23] Host: And this lawsuit, is this something that furniture industry insiders will have heard about? I mean, was this a big industry event?

Guest: Oh, it was a giant industry event. It was a third rail in the industry. You know, people were mad at each other. You know, I'll never work with you again. Yelling and the whole thing, it was a crazy, crazy time. And there's, you know, there's a half dozen to maybe two dozen industries have gone through the same thing. You know, this, they've done the same, the same process. It's, it's a tricky, difficult process. But, you know, we proved a point and we saved a good chunk of businesses by doing so.

Host: And, and, and in fact, going back to what we were saying before about what would there ever be a staunching of the bleeding of this China effect? In fact, there was. So, so you pushed out, through legal means some of this, a lot of this competition that was killing you. So, so obviously good for business. So things started and you felt that within a little bit of time, I imagine the next year or two.

Guest: Well, I felt the check I got that was for sure. It took a longer time. And, you know, China is still, you know, is still 90, 90, 88, 89% of the, of the wood business. But at least it stopped the pendulum there.

Host: And so what you, what they were doing that was unfair was that it was being subsidized by the government, because if they're still competing, it's not like what changes.

Guest: Yeah, I mean, it was crazy. Obviously you had inexpensive labor that was, that was just a portion of it. You had illegal timbering.

Host: Okay.

Guest: You know, so they're cutting down trees for free in places that, you know, didn't have controls. And, and then they were, when they would export, obviously the, the Chinese government gave a lot of their factories money to start up and buy things. And then when they would export, they would get up to up to 20% export. Like a reverse tariff to export the United States.

Host: Yeah.

Guest: So the cost for the cost of product coming here from China in those days was maybe 20. It was a quarter, a quarter what it would have cost to do here. So it was well below the price of the inputs.

Host: Wow. Gotcha. And so the outcome of this case is that the prices of furniture coming out of China, wood furniture coming out of China, have gone back up to where they're kind of more in line with what the costs are.

Guest: Yeah, this international trade is never that simple. But what it did is it really kind of stopped. The, the, the most Egregious folks from, from continue to do their stuff. There were still a lot of factories that are, that were exporting here and those factories were doing things legally and they continue to have access to the, to the market. So it really didn't stop a flow. The ones that it stopped either, they, they either got acquired by folks that were doing illegally or they would, you know, transship stuff through Vietnam. So it never got, you know, it helped you never, you never stop it. It's, it's a little bit of a whack, a mole game.

[1:00:27] Host: Okay. But in the meantime, the way that you've survived is you basically sold more, sold different channels, found new customers and found kind of toeholds in various retailers. Room and board is a high end retailer, so you're in the high end niche. Room and board is also American. Everything's American made. Right. So you're, you're, you're maybe really starting to cater to position yourself as American made and, and sell at a premium based on that. Which was a new strategy, new marketing strategy for you.

Guest: Yeah. So the American made was, was, was part of it. Rural Board a wonderful customer. They had the same kind of DNA we did. They believed in, you know, beautiful wood Made in America. And so that was really a natural growth for us. But our own business. There's two things we would talk a lot about. Made in America and we spent, I spent a lot of time talking about sustainability. I helped found the sustainable furnishing council 17 years ago. No one knew what sustainability meant 17 years ago. And we began that conversation within the industry. And, and obviously that's getting, that's become pretty commonplace today. But it wasn't those years. So main America and sustainability were the points of trying to differentiate, to hold a niche and you know, interesting kind of long arc stories that in those days people would make fun of you for making things United States. The answer was like, oh, when are you going to start importing? When are you going to go out of business? It was kind of impossible. And people treated as such and you know, when you told someone you're an American manufacturer, they kind of looked at you like you were a fool. And there really wasn't a premium for being made in America in those days. Too often made in America was presented especially in the 70s when I was growing up, it was like, hey, buy an American car, be a good American. That, you know, that doesn't, that doesn't sell much product. And it wasn't important to people today. That's changed a lot. People, you know it's coming back. More people care about where things come from and how they do it. And, you know, a low price isn't justification for, you know, for anything today. It's kind of fun to be an American manufacturer. Like, wow, what a novel. Neat idea. That's great. You must be really smart. And, you know, I'm a survivor. So we're one of the last dogs in the kennel. And people, you know, kind of being nice to us now as much. It's a much better situation.

Host: Yeah, yeah. Well, not to pump your tires, gat, but you must feel pretty damn good about holding on and emerging from this on the other side because you. It was bloody and here you are.

[1:03:09] Guest: Yeah, yeah, yeah. You know, you walk into a factory and you have people here that those days had worked 25 years here. They. They were fully committed to it. You know, the last thing I wanted to do is to be a furniture marketer and forget about, you know, the people who built this business. So it was fundamentally important to me. It's, you know, a community. Having a manufacturing factory in a community is a real thing. I mean, the people who work here, you know, are the firefighters there, they run Sunday schools, and it's the fabric of what we do. You know, I just. It was terrifying to have that being ripped out. Not just myself, but a whole lot of people here that had put a long time into it. So, yeah, there was great pride. And I really. I look at myself. Not a necessary victor, but a survivor. But yes, absolutely.

Host: Well, what you just said is such an encapsulation of the economic trauma that we all know. Hear so much about. If we don't live in these communities, we hear about it through the news. And of course, it. It's more than made it into our politics and just the. The devastation wrought by the outsourcing and manufacturing. I mean, this is. I don't need. Everybody knows this is an old story by now, but to hear it firsthand from you and to have been kind of on the precipice of having a manufacturing business collapse in a small community where so many people depend on the factory, it really hits at home. Tell us about the community. Where are you based? How big a town is it? Give us a. Paint a picture.

Guest: Happy to. Berkeley Springs, West Virginia, was one of the early spa towns of this country. It was surveyed by George Washington himself when he was in his teens working for Lord Fairfax. So we have a warm spring in town. That's the name. Berkeley Springs. It used to be called the town of Bath, named After Bath, you know, a copy of Bath England. And they had a polio hospital in the, in the, in the 20s and 30s in here have we have a castle for someone in the 1890s, the, in the roaring 90s built a castle so his girlfriend would marry him and move out into the spa town. So it's a, it's a, it's a wonderful little vacation.

Host: Castle still there?

Guest: Castle still here. Absolutely. And yes, two hours, an hour and

Host: a half outside D.C. give us two hours.

Guest: It's an honest two hours outside of D.C. basically due west of D.C. 100 miles due west of D.C. so it's nice in the fact that it has some access to larger cities. It's not totally remote, but, you know, small towns are small towns. There's been difficult. You know, our country is, you know, often forgot about small towns since, since Lyndon Johnson was in. No one's really paid a whole lot of attention to smaller towns. And they're tough, but they're also wonderful in their own way too. So it's. Well that our whole county's 14,000 people.

[1:06:05] Host: Wow. The whole county. So, yeah. And, and are you the county seat? Is Berkeley Springs the county seat?

Guest: We are the county seat, yes, indeed.

Host: All right.

Guest: Yes, sir. All right.

Host: And so what's the population of Berkeley Springs proper?

Guest: So the town is 16, is 600. It's one of the little old school towns, you know, Lord Fairfax and Mr. George Washington only surveyed, so space. That's a tiny little footprint. Yeah, but it's a, it's a, it's a nice town. It does great weekend business. So there's a lot of folks that come out here to escape D.C. pittsburgh, Baltimore on the weekends. And yeah, it's basically the star of the mountains. As you work from the east coast. As you work from the east coast, get heading west.

Host: Okay. All right.

Guest: It's four hours from where I grew up, so it's. It. I learned, I went from here, so I've got to learn what it was. It was, it was a true adventure moving from Chicago to Berkeley Springs, West Virginia. And for those that have, have ever moved from the big city to a small city, you'll never feel wealthier than that day you move into a small city. So that was great. And then, you know, but small city.

Host: Yeah, but you were from West Virginia, so you were, you were prepared for. I mean, you knew what you were getting into, so to speak. I mean, you knew the culture of a small town. Right. But I guess you said you were born in the suburbs of Charleston, so By comparison, Charleston's a big city.

Guest: Yeah. So, yeah, you know, there's West Virginia. There's a sense of place here. People love being from West Virginia, and I'm one of those. And be able to come to your home state and have a career means a lot to me. It means more than just. Yeah, there's, there's, there's a lot of pride into that, for sure.

Host: Yeah, that's so, that's so cool. People are going to just really resonate with that, I think. Get. Okay, well, we still got some topics to hit. I want to talk about the future of manufacturing. I want to talk about what you would say to people who are trying to buy a business now that you are potentially going to maybe be a seller. Not imminently. So before we get to those closing themes, get. Let me just, let's get up to speed on the business. Okay. So you did that big loan, I guess, in the early 2000 to, to, to expand capacity to gun toward 30 million. And then all hell broke loose. Where's revenue today? 20 odd, 20 years later.

Guest: Yeah, I'll walk it forward. The. From kind of 10 to. From 2010, 2012, business got relatively good. We were able to start growing the business at, you know, kind of a 10 clip, which is really great for manufacturing. It's hard to grow a whole lot faster in 10% where you have to buy machines and train people and actually produce the stuff. So we were really happy. We were growing at a 10% clip. And then Covid hit, which everything, obviously everything stopped for six weeks. And then for two years, everybody was locked up at home with nothing to do but to buy furniture and other crazy things. So the business went from growing in a nice way to being totally overloaded. Our demand doubled. And we went from an operation that would deliver furniture, that could deliver furniture, and four weeks to our low point was 23 weeks. I shouldn't say a low point. Our slow point was 23 weeks. And you know, what a crazy, crazy time. You know, counter to what was kind of fun was the longer our lead time got, the more people bought. You know, God bless the American consumer because, you know, if you tell them they can't have something they wanted even more and you know, we, you know, and, and you know, you give the American consumer a dollar, they'll spend A$50. And so it was one of, it's kind of one time in life that we were in the right place at the right time. Yeah, I had, I had. Someone called me lead time for 22 weeks. I was like, I'd like to buy a nightstand from you. And I was like, oh, that's great. I'll give it to you in 22 weeks. I'm like, what? And I explained the whole thing to him. He goes, well, heck, I better get two of them then. You know. So it was all that craziness.

[1:10:09] Host: I was that guy in a couple of conversations. I. I understand that psychology well. I probably did a little of that myself.

Guest: Yeah. So we were. We were nearing our capacity point before co. Before that, all that hit. And I, you know, made the decision it was time to. To actually expand this facility, expand our capacity, and to shorten the story. Basically, I doubled down. We went to the bank. It was a great time to borrow money. We had two years of boom in sales and good revenue, and the rates were as low as they'd ever been in the world. So I went and borrowed $7.2 million, and we built out another. We went from 100,000 square feet to 140,000 square feet and put what needs to be put in place to double the size of this bit, double the capacity of this business. So, you know, I was at the point where you doubled down. And obviously, those decisions are really interesting and tough decisions to make, especially because the last time I expanded, I almost went broke. And you'd also look like, well, now might be a good time to sell. Everything's up, up and up. And I ultimately decided that, you know, my best opportunity, my really best opportunity was to go ahead and double down. So, you know, went back into debt, expanded, upgraded the facility. Took two and a half years. It took us a year to get the steel to do the expansion during. During all this stuff. And we literally finished that expansion in January of this year. So we're now trying to, you know, fill up what we've. What we've built. But, yeah, I literally doubled down. And I guess it was a time when I said, you know, I think there's more inherent value here than that someone would pay me for. And I think the idea that, you know, $20 million business is a $25 million business or so is a nice business, but the opportunity to grow it would really be kind of awesome too. You know, we were at a bit of inflection point where it gets large enough where you can, you know, you can hire a couple people that you'd normally had do yourself. So it was getting a nice chance to hire really, you know, what do we think and believe great people, and you can bring in more talent, and it gives you A lot. Not just that, but also it gives a lot of people that worked here a chance to, you know, become a supervisor, become, you know, work your way through it, create a lot of opportunities for people here and the people here are hungry for new women and, you know, embrace the challenge of doing more and different things. So, yeah, it seemed like the thing to do. I don't, don't ask, but I'm going to do what I've run out of capacity again because I don't think I would do it a third time, but at least I'm crazy enough to do it twice.

[1:12:52] Host: Well, gad, a bunch of follow ups there. First, how did you get comfortable with the new demand? The new, yeah, basically consumer demand for your goods that, that would sustain itself after Covid. We're all now extremely aware of the COVID bump, but people, even dirt, even in the midst of it, could see that this was probably a fleeting phenomenon. So how did you get comfortable to double down on that phenomenon?

Guest: Yeah. So then you, you, you've, you know, it only takes a little bit of common sense to know that it doesn't last like this forever and that we would have to return to some kind of normal. Not only return to normal is that there would good chance there would be a bit of a hangover after we go through this whole process pulling forward

Host: of demand as we, as we heard.

Guest: Exactly. It's a pretty fair assumption of what pretty fair analysis of what happened. So you really had to go back to 18 and 19 and think through there, you know, can you grow and you know you're gonna be back there. So in manufacturing, when you have a giant backlog, you've oversold yourself. You have to. The only way you catch up is by overproducing, which is great. And it's fun to produce all out, all the time until you actually catch up. And then suddenly you have to produce at your rate of sales, which is always less than what you, you know, than what you've been protrudes at to catch up. And so we've been totally focused on trying to create a soft landing, trying to grow our core business fast enough that when we got done building our backlog, we wouldn't have to go and do a whole. You have to do a riff and, you know, fire a bunch of people. And it came close. It was not, it was not a soft landing, but it was really, it wasn't that. It wasn't super hard, but it was tricky. So we went from producing $120,000 a day to a little 95. So 120 to 95. We were. Before COVID we were doing $80,000 a day. So we're back on that kind of 10% growth path. And so we ran the numbers that we would take a step backwards and then restart growth.

Host: So you're doubling down, really? Maybe the. Maybe the surge in demand during COVID caused you to really think about it and kind of nudged you to make the decision. But in fact, you were trendlining from 2018, 19. So the decision with or with, even without Covid, you would have kind of eventually been forced to make the decision to double down or not, because it sure did. A 10% brought that a year forward.

[1:15:23] Guest: And part of this is, too, is like, you know, if you want to sell the business, I don't know how you sell a business that's running a capacity. I mean, you, you know, no one's going to pay to pay a multiple for a company that, you know, can't get, you know, you can't grow without putting additional capital in.

Host: Right.

Guest: Yeah, exactly. Great.

Host: And then the. What about you said way back at the top, talking about what your vision here could be or, you know, some of the paths you could see this going were other acquisitions. Buying an upholstery company. I think I heard you say. Did you ever. What? I don't think you ever acquired another business. Why not?

Guest: And that's the logic. When you're in a declining market, the safest path is to merge and consolidate. And the wisest path to do that. But this thing was declining too fast. There really wasn't for a long time, there really wasn't anything out there that you would, in terms of woodworking that you'd want to buy. We looked a couple times at literally just buying product lines, which would be something you could do without whole bunch of cash down. And you could bring a product line into here. But all those product lines were kind of old. It was ultimately, we were better off developing new product lines ourselves than buy an old product line and wind it down or move it as it. Wind it down.

Host: Yeah.

Guest: Yeah.

Host: So, okay, okay, fair enough.

Guest: You know, maybe one day we do. It didn't. But also the other thing in my mind was again, crazy to own one factory, furniture factory. I didn't think I wanted to own a second one. Not just because the risk factor. And now you got plenty of risk in the furniture industry, but also lifestyle. I mean, it was a thought that, you know, it's kind of nice to live and work at the same place you have A second factory that's in New Hampshire. And I, you know, have all good things to say about New Hampshire. But, you know, it's nice not have to get on an airplane and fly up there once a week.

Host: Okay. Size of business in terms of revenue. I think I heard you say 25 million around just before COVID hit. Was that right?

Guest: We were running, I guess, 20 when Covid hit. And we're, we're pretty, we're about, we're, we hit. We're. I always round off the round numbers. We're like 20, 27, 28. So sometimes I say 30, sometimes I say 20, 25. But it's a, yeah, 25, $30 million

Host: business where you are now after the kind of COVID pullback a little bit. And on the back to the trend line. 20, 18, 19. Trend line. Okay.

Guest: I guess we're friends. I would tell you, we'll tell you. We'll be 25 this year. You know, we have, we get basically 250 days to build furniture. We're building almost $100,000 a day. $25 million business.

[1:18:11] Host: Great. And so to doubling capacity.

Guest: That's the way we think it's. That's, that's, that's why I would look at things. So yeah, yeah, 25 million dol year

Host: the way you think. Meaning you look at, you look at production per day times 365.

Guest: Yeah, we get, we got, you know, this month we've got 21 production days and we're going to build this month $95,000 a day.

Host: Yeah, yeah, right. So you don't produce every day.

Guest: You produce 21 days.

Host: Ah, next month it's $100,000 a day.

Guest: Yeah, we're entering in table season. We love table season. It's, you know, no one buys furniture over the summertime. We have to get, kind of get near Thanksgiving so people start buying tables again.

Host: Ah, okay.

Guest: We are seasonal. We're heading into the good season and there's a little bit of seasonality in this business. So we're moving up.

Host: Great, Great. Well, I wish you a good strong season, a good high season.

Guest: Thank you.

Host: And, but, and then, but going back to doubling capacity means therefore you're, you're hoping for kind of a 60 million, roughly 60 million dollar business in the next how many years when that loan comes due.

Guest: Yeah, I get, yeah. I mean, if you could do that and you know, you'd love to think you do it in five years. If you grow 10% a year, I guess you double in seven or eight years at 10%. I think that's about right. So, you know, I would say, you know, seven to 10 years if we could hope we were on a trajectory that we could fill up that capacity seven to ten figure.

Host: Great. And one other thing, G. So I asked you in the pre call what your margins were so of, of in a $30 million business, what of that is EBITDA. And you said what? And, and by the way, that that's kind of how. Not kind of, that's really how we think people out here buying businesses today, we always are thinking about what the, the margins are. But you were, you said to me, well, I don't really think in terms of margin. I think in terms of return on assets, return on capital. And you're actually my second guest to say that, I guess a couple of months ago, Dan Tagliatella, who also comes from a finance background, if you want to call your background back in your 20s, in the 90s, of kind of finance background. And, and he, we kind of riffed on return on assets and he made the point, you know, I don't know why that's not, that's a very common metric among analysts looking at manufacturing companies or hard asset companies in the world of finance, but you never hear that metric talked about here in the world of business buyers and searchers. So he gave us a bit of a tutorial and I'm going to ask, I'm going to kind of push you for the same type of, type of next two or three minutes. Explain to us return on assets in, in your, in your case and why it's, it is the lens through which you, you gauge the health or profitability of your company.

[1:21:04] Guest: Yeah, sure. So I guess now we have about a $15 million balance sheet. So we have $15 million of assets here. And yeah, we really look at what your return on assets is. That's really what the investment is. If you're going to have a million dollars worth of investment somewhere, you're really wanting to know what you're getting on that capital as opposed to what percent of sales you're getting to keep yourself. And so the cost of capital, you know, these days a little higher. Used to be, you know, debt, debt cost 8, 10%. If you have secured debt, you know, you make up what you need for equity and you say, you know, I want to make 20% equity. So if you have an asset that's, you know, this asset would this company, if it generates, you know, 15% return on assets, the 20% return on assets that's a pretty darn good business because you put a little leverage in there, then you're getting a return on equity in the 20s and 30, you know, 34, 30 and 40%, depending on how much leverage you put on it.

Host: So, and that number is appealing because when we compare, when we compare 30 or 40% to investing in the stock market or something, you see it's typically, you know, single, high single digits, low double digits. So, so 30 to 40% compared to what? Why is that so strong?

Guest: Yeah, you know, boy, it's hard to buy a public stock and make 20% every year. So it's kind of nice to have. Obviously it's a different risk profile, but it's really nice to be able to run that. And you know, it also just tells you what kind of capital you can afford. When you're getting a 10%, 15% return on assets, it's pretty easy to leverage those assets. And you know, when leverage is affordable, you can really, you can gen your equity returns. There's a great, you know, a lot of public companies run this way these days. There was a great book, you know, years ago, was it the Outsiders and really talked about, you know, the real, the CEOs that have really generated long term value for their shareholders or the folks that are focused on their return on assets and you know, they're buying back stocks, they're using, they're using cash to, you know, to make the denominator smaller and thus making general a bigger return. And that's, that's, and that follows a little bit lean manufacturing. You know, we try to be really capital efficient here. We had to do it, you know, in the days of China taking over the business. But you know, capital efficiency is very key. So you know, low inventory, you know, you collect your cash quickly, we pay people in normal terms, but that all adds up to a real return. And so that's the big picture. You always do look at your ebitda. Ebitda, that's important to just look at your performance. But ultimately, you know, running a business, you know, my I get is the, is the return on capital is the real measure.

Host: And just to be clear, when you say, you're using the phrases interchangeably return on equity, return on capital, return on assets. Those are basically all same thing.

[1:24:04] Guest: Yeah, it's similar. So obviously we, I just look at return on assets as the first number I look at because you can, you can, you can gin your return on equity depending on how much debt you have. So you adjust your debt levels, your debt levels Adjust, you have different return on equities.

Host: Well, one of the things that also this really communicates is that as the owner of a business, a 25 million soon to be 60 million dollar business, you're really making capital allocation decisions when you make business decisions. And so it's kind of like the best entrepreneurs, the best business owners think like investors capital allocators. And in fact, I think, I think that that is kind of the thesis of the outsiders is that those, that those executives who are so successful, those five profiled executives and the outsiders who are profiled are basically think like investors capital allocators as opposed to, I don't know, businessmen, if you can.

Guest: Yeah, no, I think it's, I think it's a very, that's, that's a big part of it. But for me, what's my job as running and owning this business? It is capital acquisition, how to get as much capital as you can because these businesses are hungry for capital. And then how you allocate it the most effectively, you never have enough money, so you've got to be effective on how you distribute it. So two things of being an owner of a business, it's capital acquisition and it is, you know, alignment of interest so that you have a business and management that everyone is aligned what you're trying to achieve. So you know, alignment management and capital acquisition or just, you know, gathering enough capital allocated properly. Those are, those are the core, that's, that's my core job.

Host: Okay, let's start wrapping up. Let's look to the future a little bit and talk about manufacturing from here into the future. So you, how are you thinking about manufacturing? We've already looked at the history of the last 25 and 30 years, how rough it's been. But as you said a few minutes ago, being an American manufacturer is cool again and you're looking like a genius and say more. What do we think about this trend overall that we hear so much about manufacturing coming back?

Guest: Yeah. So the future of manufacturing, future of American manufacturing, I'm wildly bullish on. Obviously, I've doubled down in my own business as a manufacturer and there's a couple things behind that. One is the demographics. We're in a really nice demographic growth area where the Millennials and Gen Xerstad made millennials around. There's a lot more Gen Xers and they're all now moving into the age of having kids and buying home homes and you know, there's nothing better. An American that forms a family, they, they got to buy all kinds of stuff. Like minivans and houses and furniture.

[1:27:14] Host: Dining tables for Thanksgiving.

Guest: Good. A good dining table. Absolutely. The, you know, and you know, in 2008 it was just the opposite. You know, all the, all the baby boomers are moving out of prime consuming time. Now we're, we're at, we're, we got the win in our back in terms of demographics today, especially for consumer durables. So the next five, 10 years I think is going to be, you know, in terms of demand. We're going to have a really attractive forefront for us that's applicable to a lot of different businesses that is good in terms of manufacturing. A couple things that are really great about it. Again, the American consumer today, not all, but more and more American consumers, you know, care about, you know, what's up, the cost as well as how it was made, where it was made. They want product that is safe and that treats the environment with respect. I think that's key and important. It's not always like that. So there's a reason for optimism. I think back in the 15 years ago, we used to say Made in America was a good tiebreaker. Today, I think actually people would pay a little bit more for something made in America that they could fundamentally trust. Not a lot more, but a little more. And that goes a long way. And then manufacturing, the manufacturing technology today with primarily the CNC computer controlled manual technology is really wonderful. We've got big giant gantry CNC machines that are magic. They're equivalent to digital printers and as some of you would know, digital printing. You Design something in 3D, print it layer by layer and you have a 3D shape. That's what they call additive manufacturing. We do subtractive manufacturing with the same technology. We essentially take a block of wood, cut away what you don't need, and you have a beautiful part that comes off of one machine. You know, in the old days we'd have to take a piece of furniture, take it to a table saw, a joiner, a table saw, a drill press or this or that, that to make a part. Today we literally put it on one giant machine and a part comes out, it's fast, flexible.

Host: And so, so how does that, how does that, what does that mean for the, your labor and the people who are working in the factory are basically everybody keying things into the CNC machines as opposed to working with their hands sort of picture.

Guest: It's a great combination. That's really probably the secret to a lot of the manufacturing is it automation these days. And it is, it's actually very Easy and very affordable and very effective. If you have a uniform input, plated glass, sheet of steel, a nice piece of nice panel of wood, drop it on a machine and it will work fast, furiously and do everything you want it to do. When you have variability as an input, it becomes quite hard and quite often people deal with variability much better than computers and technology does. That's slowly changing, but that hadn't quite changed yet. So in our operations, very, very conscious about what we're doing by hand, what people are doing and what machines are doing. So where there's variability, especially when you're actually assembling a piece of furniture that is done by a person in their bench, it's done in a non linear way where the person gets, puts the whole piece together, signs it, dates it, moves it on where we have, you know, we have uniformity. And that would be machining a panel. The CNC machine does it beautifully. Better than a machine, it's better than a person can do. And so it's a combination of the two. It's in no ways, you know, people going away for the next couple decades.

[1:30:43] Host: Thank you for that gatt. So I, I want now to close us out. I want to ask kind of a few questions here that basically prompt you to reflect on your career and, and kind of, kind of apply your experience to where people are who are listening to this. They Are you in the 90s looking for businesses, you know, on the other side, on the beginning, end of the journey that you're so deep into already. First would just be to I guess talk to them. This, this path has worked out well for you, right? Despite the, the gray hair, despite the fetal position moments when, which were years long, it sounds like during those rough, those rough patches in the late aughts, but I guess net it out for us. How do you feel about having chose this path?

Guest: Yeah, geez, I could tell you I still think I'm a young guy doing this for the first time. It's kind of funny to be the old wise guy. It's a little different than my mind's eye. It's been a wonderful journey. I would recommend it to anyone. I think what's been, the things that I've enjoyed the most and what I enjoy often about working this entrepreneurial thing of owning a business and buying a business, you know, really works to a lot of it. You know, things that I truly enjoy and I find great is just the process and ability to be creative. Creative not just to simply try to design a nice product, but designing processes Designing how you work with people. And it gives you a great palette to be creative in solving all kinds of things. When that's. That's stuff that you wake up in the morning trying to figure out how to do this or that better is all cool stuff. You know, I generally like working with people, so it's, you know, I like the people I work with, and you have a lot of control over that. And I think the one thing that's just, you know, I've been able. I've tried to focus on lifestyle. I mean, it's. It's, you know, I work hard, but I have a level of freedom I wouldn't have had I been working for someone else, you know, and that freedom is wildly valuable to me. So, you know, I'm able to take a vacation when I want to take a vacation. I'm, you know, able to, you know, I need to be gone. I could be gone. You know, I typically show up on a Saturday and make up for that lost time, but I have freedom to take time when I want to. And. And that's real value. You know, it's really nice. You know, people like time off and people like flexibility. And I, you know, there's. I don't know of a situation where you can have better flexibility than, you know, owning and running a small business.

[1:33:27] Host: And gat. What about specifically buying a business versus starting one from scratch? So this podcast is all about that, buying an existing business rather than starting from scratch. One of the sort of mantras of this space and of this podcast is the media has told us that an entrepreneur entrepreneur looks like Mark Zuckerberg and Elon Musk starting giant ideas from absolute scratch, which is glorious and great, but it, it makes people feel like if they don't see themselves in Mark Zuckerberg or Elon Musk, which most of us do not, then, oh, I guess I can't be an entrepreneur, because that's what I'm told an entrepreneur looks like. So what about. What would you say about that distinction between the fact that you bought your business as opposed to starting something from scratch?

Guest: Yeah, the, you know, the most obvious is. Is great, and Mark Zuckerberg is a very obvious example. But there are nuggets of value all throughout this country. There used to be a lot in manufacturing. There's a lot of different places in it that there's real value. So you don't have to look like the most obvious. The most obvious player to find success. I like to say, when you go down, do a kayak or go down to whitewater, stuff like that. They always have, Eddie. So whenever there's big trends and big trends are great and big powerful trends out there, you know, there's often an eddy where the water circles back and goes upstream. And those are kind of fun little niches to be in. So you don't have to, you don't have to, you don't have to be in a big current to have something that's exciting, you know, it's, it.

Host: Love that metaphor.

Guest: Great.

Host: Okay, and now, and now speak to people who might consider buying specifically a manufacturing business. You've told us big picture what you think about manufacturing. But, but put yourself in the shoes of somebody who, you know, they don't even, I don't think people even take shop class anymore, by the way. Gats. So, so a lot of the listeners who might buy buy manufacturing business have never set foot in a shop of any kind and probably don't have the experience that you had at least talking to manufacturing executives that you did while in your Chicago days. What would you say to somebody who really doesn't have manufacturing experience but for whatever reason is drawn to buying a manufacturing business?

Guest: I'm going to go off a quick tangent before I answer that question and tell you. When I first ran into my shop teacher, my high school shop teacher, after I bought this business, it's about two years after I bought the business, I'm at a wedding in Philadelphia. I'm walking through the hotel and my shop teacher says hi to me. He was at the same wedding. Obviously my buddy was a good shop guy. I was not. And I look over, I say, Mr. Brown. He goes, oh, God, how you doing? I said, I didn't expect you to remember me. I wasn't one of your good students. And he goes, oh, I know. And my wife was with me. We just got married. And he goes, I get a kid like you every couple years. My wife goes, what kind of kid is. He goes, well, yeah, you know, you were doing a nice little project, nice little table, and the last three weeks of school came around and you never showed up. I said, Mr. Brown, I, I, I'm sure I was in the library or something because I don't know where you were, but you weren't doing your stuff. And I said, well, I guess I owe you an apology. And let me, let me do so right now, get an offer you a heartfelt apology for that because actually, yeah, you don't owe me apology. I said, what do you mean? He goes, well, you know, after you left school, I Took all the parts you had made, fixed a few of them, put them all together. I have a piece of your furniture in my house today. What? I said, well, that's great. I feel so much better. I said. I said, is that why I got a B in your class? He goes, yeah, yeah, you were a C student, but you did me a favor. You didn't know you did me a favor. I figured I'd owe you one, so I gave you a B. I said, well, thank you. I didn't get many bees that year. He goes, I figured that as well. And we all kind of had fun, started smiling and so we started walking off. And he looks at me, says, well, so what are you doing these days? I said, Mr. Brown, I'm manufacturing furniture. And the guy turns white. He goes, what? I said, I'm manufacturing furniture. What kind of furniture? Oh, antique reproductions, wood, this and that. The more I told him about the business, the worse he looked. And he finally looks around and he's like, and you could tell, he's like, I gave this idiot a B and he thinks he's in a vocation he's going to be successful at. I feel terrible. And he goes, he goes, are you making the furniture? I said, no sir, I just run the company. He goes, oh, well thank God you'll do just fine then. And color came back to his face and we walked off together. I bought the beer. So I bought the first beer and he's gath you'll turn out all right. So, you know, never, never let a shop class deter what your ultimate vocation is, nor let it be inspire you into doing something you can't do. So that's, that's my, that's my shop. Tish Guy was a great guy. He was a 50 year shop teacher. I wrote him, I wrote him a letter when he retired about a year ago. What a cool guy. The. Yeah, I think, you know, one of, one of the awesome things about

[1:38:45] Host: doing

Guest: something new and acquiring a business is also the opportunity to learn. You know, you're problem solving, you're learning. It is a great opportunity to jump in with both feet and do some stuff. I think, you know, each year you learn, you figure out it's, you know, no way to make yourself stronger as a business person, you know, as someone that kind of contributed society than jump in and do stuff like that.

[1:39:11] Host: Yeah. So one of the things in our world here of, of buying businesses is that we hear so many stories of people who've done it successfully and we, and we, and we believe that we can do it successfully, which we can. And. But then maybe we get a little bit overconfident and we interact with businesses in the world and if we come across a business that we like, we say to ourselves, huh, maybe I'll buy this business.

Guest: Right?

Host: So there's a, there is a heart. There's a American made wood furniture retailer here in the D.C. area whose stuff I admire. Though I haven't bought anything just because I have my stuff, but would like to at some point buy a piece from. They're called Hardwood Artisans Manufacturing facilities in Culpepper, Virginia. I'm from Virginia and you know, I've gone in that store and kind of, you know, strokes my chin and been like, you know, buy this business or wouldn't it be. Or maybe I'll just reach out to the owner one of these days and just start open a conversation like, like you did with Tom Sealy. What should I look for in a, in a manufacturing business? What are, what are some of the key signs of health that I might, that I'm looking for? Maybe the technical ones, obviously the ones that apply to every business, you know, history and brand and some of that stuff is universal. But maybe more specifically, especially this business, which is probably a competitor of yours. What should I look at?

Guest: Sure. No, I know those guys, they make, they make beautiful furniture. They're good, they're good folks. And they have retail stores so they're fully integrated operation. So they're making stuff with Culpepper and they're selling it in D.C. which is what you want to do. It's nice to make things in a relatively low cost operation and sell it in a high cost operation. So they've got that all right to them to speak. You know, when I would look at something, I would look at, you know, how good manufacturer they are, would be something I would look at specifically.

Host: Quality of product.

Guest: Yeah, the quality product and how good they are making it. You know, there's a lot of people that can make a nice quality product, but doing it efficiently and you know, in a backwards way.

Host: Like. Like what you founded Tom Seeley. Yeah, yeah.

Guest: So that would be part of it. I think the more important lesson and what, what I'm working towards and I think this is a general across the board, the closer you are to your customer, the safer you are and the better chance you have to get paid. Well, I think this, it's an analogy that people often use in corporate life, you know, and you work for a big corporation, the closer you are, the Customer, the better chance you have survive a merger or downsizing, often you're the better. You're often the better paid person is the one that has the connection and relationship with the customer. Owning a manufacturing factory has a lot of similarities to that analogy in that the closer you are to your customer, the more chance you're going to have success both in terms of being able to communicate, tell your story to them, and also just learn from your customer and what they really need and want. So you do that well. This industry, furniture industry, has multiple layers of distribution. And my old distribution, where I was 100% selling through independent retail stores, is multiple steps away from the customer. As I grow and grow our business, the channels that get us closer and closer to customers are the ones that are most valuable and give us the best return. Your example with Hardwood Artisans is a nice business in the sense that they're selling directly to the customer. There's obviously challenges with that because there's a good bit of capital and other things you have to go in, but you always want to look at how close are your customers. And there's often a great play and didn't have to be manufacturing. But anytime you can eliminate a step in distribution. So you're not going through a jobber, you're not moving product through a warehouse, you're not moving things that whenever you can take a layer of distribution out in an industry, you have got a business model that's going to give you a return.

[1:43:09] Host: And so I'm clear. So that. Great. Understand how Hardwood Artisans is closer to its customers because it sells retail, its own retail stores. But in your case, how have you gotten close, closer to your customers?

Guest: Sure. So we'll work with, you know, obviously still a large part of our business is. Is. Is working through independent retailers. We work with a room and board, and room and board's a different type of relationship. You know, we develop product together. They essentially own the product. They label. They market and label the product. But, you know, there's no, There's. There's no salesperson between, you know, there's. There's. We're much closer to customer, driving much better value to the consumer, driving good value to the consumer. We'll work more and more with specifiers, so a designer. So we could sell to specifiers both in terms of residential and commercial. And then, you know, we'll occasionally, where we don't have retailers, we'll sell direct to the consumer at a retail price. And those are all valuable channels. And you kind of have to do all the above in business these days and the ones that are close to the customers will ultimately give you the best return. Often now with the hardwood artisans, you know, one of the difficulties is those are, that's two different businesses. You know, they've got, you've got to run a retail store and you got to run a factory. In the case of furniture, that means you get to work 24 hours a day because all day you wake up early in the morning Monday through Friday in a factory and then you stay up late Friday night, Saturday and Sunday selling furniture. It's a combination that's pretty tough. It's a little bit like the end up. You end up having a schedule much like owning a hotel, which I think would terrify me because that'd be 24 7. But owning a retail operation and a manufacturing operation, well, it creates a great value. It's going to take a lot of hours of your life.

[1:45:03] Host: Yeah, great, great insights. Thank you. Gat, last question for you. So again, to tie it to this, you know who you're talking to and, and that are the, are the Gatt Capertons of, of today, the guy cappers of the 90s, but today. So how would, how you're not selling your business but you know, at 57 and you, you hit your 60 million mark, you know, it's feasible that you might sell your business sometime in the next next 10 years. You know, call it give or take.

Guest: I would typically, I would sell before that. I think it would be, if you get halfway there would be the more ideal time.

Host: Okay, great. So, so five years, if you got calls or, and maybe you already do, or emails from people who are, you know, starting out of their career or more or more mid career but you know, in their 30s, 40s and, and they kind of say hey Gad, I, I would like to learn about your business. Or maybe they're more direct and say I'm looking for a business to buy. How do you react to those calls now that you might be receiving them as opposed to making them to Tom Seeley as you did back in 94 or 6?

Guest: You know, I always pick up the phone. I, you know, I think you, you never know what's going on until you talk to somebody. And I'm always happy to, to do that. And you know, I've had different people reach out to me over time that, you know, that I've developed great relationships with that are fun that I've learned from. I've never created, I've never gotten a phone call that's Turned into a scenario where we talked about potentially an acquisition offer. And I'm not answering the phone with that in mind, but I think it's, you know, when you run a business, it's a little bit like living on an island. You know, you appreciate visitors and you appreciate phone calls. So I tend to be quite open to people that don't live on my island because it's nice to know what else is going in the world.

Host: Okay.

Guest: Okay, great.

Host: Anything we didn't get to get. I feel like we covered a lot of ground here. This has been so much fun. Anything that we didn't touch on, you want to share with the audience.

Guest: Oh, what a treat. On. I've learned a lot by telling my old stories here. I love the context. I really. It's. What a cool and interesting topic this is. It is fun. The acquisition business, I think, is very cool. It's almost as cool as running the factory.

Host: Well, as I told you on our pre call, you did what is now a big trend to do and has vocabulary around it and podcasts like this one devoted to it and books written about it and influencers online and so on. But, you know, you, you. But, but the, but the, the formula and the pattern is the same as it was, you know, back. Back in 96 when you did it, you were just decades ahead and doing it even more entrepreneurially than. Than we do it today because you really were kind of figuring things out without any kind of beacons ahead of you. So fun to. Fun to

[1:48:17] Guest: show you, show you what

Host: a first mover you were.

Guest: Someone asked, so what are you really good at in business? I said, you know, I'm good at borrowing money and surviving. And so that's a, it's an ongoing theme. And for me personally and, and you know, a lot of it is survival. You know, stuff's not easy, but, you know, when you, when you have a couple wins, it feels pretty good. Works.

Host: Yeah.

Guest: Yeah.

Host: If people do want to reach out, how online. Where I should say online. Are you LinkedIn? Email somewhere else?

Guest: Yeah, I do a LinkedIn. I'm not very active on LinkedIn, but I'm certainly reachable there. And you know, I got a beautiful website that's called gatcreek.com. you'll have to look at a couple pieces of furniture to get in touch with me through there. But that is, that is what I have out to the. That's what comes off the island. Okay.

Host: Hey, and by the way, Gat Creek, what was the name of the business when you Bought it. And how did you choose to rebrand it?

Guest: Ah, so it was originally Tom Seeley Furniture. So I bought the business from Mr. Seeley and I ran it as Tom Seely's Furniture for a number of years, which was outstanding because every time we'd screw up and they said, what the hell is that Tom Seely guy thinking? I could look at him. And I said, I don't know what the hell he was thinking. Eventually it was the line, the product line was antique reproductions. And eventually realized that antique reproductions worked the way to go over the long term for this business. I wanted to make furniture that was designed more contemporary, not necessarily modern, more contemporary furniture. And so I kind of decided I needed to brand things a little differently. I grew up outside Charleston, West Virginia, on a road that was actually called Gat Creek Road. It was my. When I was five years old, I have a brother that was four years old at the time. My parents and four of their buddies bought a piece of land, put four lights on it, built a road in. There was a creek at the end of the road. We went cleared for our house when I was five, went out, had a picnic. I saw the creek before my brother did. I thus claimed my creek. Two five year old, four year old boys, we went fist to cuffs over whose creek it was. I was taller and bigger than my brother, so I both saw the creek first and won the fight. And my parents were just too damn tired to do anything. The hell with it, it's Gat's Creek. We'll name something after you another day, John. And my brother's crying and I'm jumping up and down and they're driving out and then they're like, we're just calling this road Cat Creek Road. So today there is. If you look to find the right place, Charleston, you'll see a Gat Creek Road. And there's a creek there that didn't have a name that now says Gat Creek. And so, you know, quite often people are like, wow, that's great. So you were named after creek? I'm like, no, I came first, I was there. Keeper named after me later on.

[1:51:08] Host: You named the furniture business Gat Creek just to rub your brother's nose in it even more.

Guest: Yeah, crazy. My dad's like, you gotta call it Cat Creek. That's a special place. People love that name. Like, I don't know it is.

Host: No, it's a great place.

Guest: My brother, by the way, eventually we got a dog, an Irish wolfhound, and named it Sean Gaelic. For John. And my brother was the happiest guy in the world to walk around this dog forever. And it was great until, of course, the dogs died. And so when a dog passed away, he's pissed off at me again. We have a great relationship now. One time I said, I want to name a product after each other. I built this, designed a beautiful table I called Ambler Table. My brother's middle name was so happy. And we sold a total of three of them. I actually had to discontinue the product. So he's. He's short. Yeah.

Host: Gat. Speaking of names, I. I just made the connection. Tom Sealy. That's. Is he part of the Sealy Posturepedic family?

Guest: No relationship at all. They're totally different.

Host: Oh, okay.

Guest: All right.

Host: All right, Gat, Great interview. Thank you so much for doing this, and congratulations on. On quite a career running Gad Creek. And here's to. Here's to doubling your. Your capacity over the next five, seven years.

Guest: You're very kind. I appreciate it. It's exactly. I hope. Hope to do so. It's been a. It's been a treat. Thank you, sir.